U.S. Housing and education is too expensive

house in hands

Many Americans struggle to pay for housing because both home and rent prices are extraordinary high. The enormous costs of education put further financial strain on families living in the United States. Why is it that U.S. education and housing are so costly? I believe that housing and education have become positional goods and that the competition for the best options ends up being a zero sum game.

When consulting numeo, the world’s largest database of user contributed data about cities and countries worldwide, one will find that the median rent price for an apartment in the center of a city in the United States is around $1,213.007 per month. In comparison to that, the average rent for an apartment in the center of a city my home country Germany costs approximately $712.14 per month. Prices for education are similarly different. The website topuniversities.com estimates the tuition fees for in-state students at a public four-year college in the U.S. to average around $9.139 per year. Out-of-state students pay approximately $22,958. In contrast to that, there is currently no state in Germany in which state universities charge tuition fees. One might assume that living and learning in the U.S. is just better than elsewhere, but I don’t think so.

As stated before, education and housing have turned into positional goods. People pay for them because they believe that housing and access to education are essential for a happy life and will help themselves and their families. However, what they actually pay for is the status symbol that attached to good education and living in a reputable area. In order to understand how education and housing developed into positional goods, we have to take a look at economic changes in the past.

America is a rich country and when women joined the workforce, its people became even richer since all families suddenly had additional income. Therefore, the average family had more money to spend and could afford a higher standard of living. People usually decide to spend their money and those things they consider important. Both access to a good education and the desire to become a home owner are deeply integrated in American values and the American dream, which is why Americans were willing to invest in them. Any family with extra money invested that money into acquiring a home or an apartment in a reputable district with prestigious high schools and universities that their children could attend. The problem with this trend is that the number of amazing neighborhood and top educational institutions is limited.

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Eventually, we end up with a situation in which a relatively large number of people want to invest extra money into housing and education but only have a restricted amount of desirable options available. As the competition starts, people bid up the prices. An individual can only get ahead if they can offer more money than everyone else. If everyone wants to attend the top universities and live in the wealthiest neighborhoods, the prices of tuition and housing will be determined by the maximum people can pay and not by the actual value of the resources.

Now we have to find out if the extra money is worth it. Are families and children who live in reputable, expensive neighborhoods better off than others and do children who visit prestige universities get a better education? Most people would say yes, because they honestly believe that they will highly benefit from both.

In contradiction to this belief, the Brookings report of 2013 found that the difference in living districts and schools in which children get their education only accounts for 2.8 percent of the differences in their performances. Other factors such as class, race, parental level of education and individual differences have a much higher influence.

However, the choice of the living district and high school and university matters due to the different prestige and reputation which is connected to different places. If your CV says that you spend your childhood in a poor neighborhood in Chicago, studied at a high school with a low success rate and then got your degree at an unknown community college, employers are probably not impressed by that. Instead, if it says that you grew up in Bellevue, achieved good grades at Bellevue high school and then moved to California to do your bachelors at Stanford, the impression you create will be very different. It is that impression that people pay for, not the actual difference in their satisfaction or education.

Interestingly, economic growth and higher incomes are not the only and most important factor which increases people’s happiness. When people get richer, they just further bid up prices for housing and education which will not benefit anyone. The study “Development, Freedom, and Rising Happiness: A Global Perspective” by Robert Inglehart and other university professors which was conducted over the time period between 1981 and 2007 suggests that social changes have high influences on happiness. For example, women today are less happy then men whereas they were happier than men before they entered the workplace. Having an additional income doesn’t seem to make the women happier, instead the opposite is true. Considering that women now have less time to spend with their family and are in many families still mainly responsible for housework, it seems reasonable that these social changes would result in a decrease of their happiness.

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